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The key 3000 level in the Shanghai Composite Index (SHCOMP) remains a good support region. Although with intermittent state buying in the mix, it is hard to determine which is which. Trading volume in the index today was 36% lower than the 30-day average volume. Hang Seng also saw volume dropping by one-third to its 30-day average. ASX 200 volume was down almost 30%, while the STI volume was over 40% lower as of 4.45pm.
It’s quite apparent that investors are reluctant to get back on the horse in the risk markets on growing uncertainty. The Fed’s inaction last week was a major factor behind the market participants’ decision to sit on the side-lines for the moment.
I feel it is probably wise for them to do just that until more clarity emerges. One of the concerns worrying the Fed and also staying their hand to hike rate is China development. Apart from the recent Chinese stock market decline and yuan devaluation, signs of a slowdown in China have given the US central bank cause to pause.
The markets will now eye every piece of data coming from China, to speculate whether it will allay Fed’s concerns. The first in the data docket this week is the Caixin manufacturing PMI due on Wednesday. The general sense is that Chinese manufacturing activity is expected to remain sluggish, due to excessive capacity issues.
Therefore, the hope is for the industrial sector to stabilise. It is worthwhile to note that the services sector has been doing better. The Caixin services PMI continued to show expansion in the sector. This underscored China’s efforts to shift to a consumption-based economy. Retail sales have also picked up from 10% y/y in April to 10.8% y/y in August.
Singapore stocks have started on a shaky footing this morning, almost testing 2850, as traders were reeling from the implication of Fed inaction. The STI, however, erased losses as Chinese equities rebounded.
The three new STI members, UOL, Yangzijiang Shipbuilding and SATS traded higher on their ‘debut’ as investors buy these counters hoping that when the passive funds rebalance their portfolios to reflect the new setup, the prices of these shares will go higher. However, given their tiny weightage, around 3.4%, their rallies have hardly any impact on the overall index.
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